Consider a fixed-for-floating US dollar-Korean won currency swap in which an investor pays USD floating and receiving KRW fixed. From a cash-flow perspective, the swap is equivalent to a situation in which
A) The investor has received a KRW fixed-rate loan and made a USD floating-rate loan.
B) The investor has borrowed floating-rate USD and loaned KRW fixed-rate.
C) The investor is short a USD floating rate loan and long a KRW fixed-rate borrowing.
D) The investor has entered into a back-to-back loan agreement with his counterparty with fixed rates on both loans.

Question

Quizplus · Accepted Answer

In a fixed-for-floating currency swap, the investor is paying a floating rate in USD and receiving a fixed rate in KRW. This can be seen as borrowing in USD at a floating rate and lending in KRW at a fixed rate, which corresponds to choice B. The investor is essentially getting fixed-rate funding in KRW by paying a floating rate in USD.

Consider a Fixed-For-Floating US Dollar-Korean Won Currency Swap in Which